I’m a bit confused about why the fact that most organizations have funding gaps would be highly relevant here.
It’s clear that if you donate $100K to X, and it has no good use for more than $1MM, other rational donors won’t give more than $900K. That seems simple enough. But it would seem too strong to say there’s no meaningful funging unless the other donors were going to give more than $900K counterfactually.
Rather, it seems likely that RFMF isn’t a binary cliff—a funder may assess the hypothetical organization as producing 4 utilons per dollar for the first 300k (because of fixed overhead / diseconomies of non-scale), 10 utilons per $ for the next 300k (which would go to the highest-value programs), 7 per $ with the next 200k, 5 per $ with the next 200k, then 0 thereafter.
So the effect of your donation on the funder’s action would seem to depend on where the funder would be putting their last marginal dollar. Even assuming the organization would have RFMF in the binary sense in all scenarios, the other funder may be evaluating a different marginal tranche than it would have absent your $100K donation.
the funders may have specific total funding targets below filling their near term RFMF, and the closer to those targets, the less they give.
For example, the funders might aim for a marginal utility of 6 utilons per dollar, so using your example numbers, they would only want to fund the org up to $800K. And if someone else is already giving $100K, they would only want to give $700K.
My guess would be that in practice, funders probably aren’t thinking too much about a curve of marginal utility per dollar but are more thinking something like: Is this org working on an important problem? Do they need more money to continue/expand this particular work? What percent of that funding gap do we want to fill?
But this is just my speculation about how I imagine people would make grants when they have lots of charities to review and lots of money to disburse, with limited time to investigate each one in depth. If they have time to review more detailed plans about what each incremental chunk of money would be spent on, they might get closer to the marginal-utility approach you mention.
I’m a bit confused about why the fact that most organizations have funding gaps would be highly relevant here.
It’s clear that if you donate $100K to X, and it has no good use for more than $1MM, other rational donors won’t give more than $900K. That seems simple enough. But it would seem too strong to say there’s no meaningful funging unless the other donors were going to give more than $900K counterfactually.
Rather, it seems likely that RFMF isn’t a binary cliff—a funder may assess the hypothetical organization as producing 4 utilons per dollar for the first 300k (because of fixed overhead / diseconomies of non-scale), 10 utilons per $ for the next 300k (which would go to the highest-value programs), 7 per $ with the next 200k, 5 per $ with the next 200k, then 0 thereafter.
So the effect of your donation on the funder’s action would seem to depend on where the funder would be putting their last marginal dollar. Even assuming the organization would have RFMF in the binary sense in all scenarios, the other funder may be evaluating a different marginal tranche than it would have absent your $100K donation.
Great point! Michael said something similar:
For example, the funders might aim for a marginal utility of 6 utilons per dollar, so using your example numbers, they would only want to fund the org up to $800K. And if someone else is already giving $100K, they would only want to give $700K.
My guess would be that in practice, funders probably aren’t thinking too much about a curve of marginal utility per dollar but are more thinking something like: Is this org working on an important problem? Do they need more money to continue/expand this particular work? What percent of that funding gap do we want to fill?
But this is just my speculation about how I imagine people would make grants when they have lots of charities to review and lots of money to disburse, with limited time to investigate each one in depth. If they have time to review more detailed plans about what each incremental chunk of money would be spent on, they might get closer to the marginal-utility approach you mention.